Ung
- Thread starter drukes1234
- Start date
isn't the current price of UNG where it is because of the June, currently rolling over to the July future's contract price, which are its underlying?
if the price of the future's contract is still $6 when we get to December, then the price of UNG should be at least $21 for a fairly good gain from today?
am i missing a fundamental here? i mean, i know that the future's price can be higher in the future due to storage, insurance, etc. but i don't think that necessarily means that the price of UNG will not go up if the NG contracts have actually risen to that price when JDecember rolls around.
really, i accept that i could be totally wrong on this so please give a good explanation if i am for i am a profit sponge waiting to soak up whatever knowledge will make me more loot.
thanks
from the numbers i gave, i am seeing a 9% lag on the way up and an extra 3% on the way down (i am only seeing 12% but you could calculate it differently). if such deviations were guaranteed in these two derivatives of the exact same gas, then that would be a great spread to play. always short UNG whilst going long the NG contracts, a risk-free arbitrage no brainer as time would eat them equally with UNG being made of the closest expiration, yes?
anyway, the point of my numbers was to ask why, if the price of the NG contracts actually went up, would the price of UNG not also go up as it did in the past (albeit lagging)?
the main thing i am wondering, as i have UNG positions (not much but hey, if there is a guaranteed loss, why EVER do that), is have the distant NG contracts not always been higher due to the carrying costs of the gas, etc. or is this an aberration that most likely means problem for UNG?
My one main concern is the contango and I think it could disturb the trade in a big way. I bought USO near the lows thinking that Crude Oil could double and obviously it's been a decent trade in the USO but nothing like crude. I think the same can happen in Natty but I really don't see a much better way to play it. I'm open to suggestions but I still believe the UNG trade will be a very good one, but will probably underperform futures.
great trade if you got USO down in the low 20s
good luck with UNG (for both of us)
Hi Guys,
New guy here.
great forum, thanks for all your humor and info.
I, too, have been in UNG for a bit.
I sell covered calls to help fight the costs associated with it.
I did pretty good with PRU over a 3 month period, selling out last week for a decent gain.
I am looking for a decent gain over the long term with UNG and others, but mostly to eventually own it outright.
I use a strategy for these types of longer holds to generate income against the bulk of my positions and use a smaller amount for intra day stuff.
Still learning and glad I found this site.
Cheers,
Steve
New guy here.
great forum, thanks for all your humor and info.
I, too, have been in UNG for a bit.
I sell covered calls to help fight the costs associated with it.
I did pretty good with PRU over a 3 month period, selling out last week for a decent gain.
I am looking for a decent gain over the long term with UNG and others, but mostly to eventually own it outright.
I use a strategy for these types of longer holds to generate income against the bulk of my positions and use a smaller amount for intra day stuff.
Still learning and glad I found this site.
Cheers,
Steve
We're trying to buy natural gas here. The spot price (the real stuff) of NatGas today is 3.55 as we speak. The July future contract is trading at $3.9, the August contract $4.01, Sep $4.1 ...etc all the way to Jan 2010 $5.95. The price of the future is higher due to cost of carry, interest, and also expectation of supply/demand.
Each day the premium of your futures contract slowly erodes away towards spot price. By the end of July your July contract is going to expire at the same price as spot. So if the price of spot is unchanged during July you will still lose money on cost of carry and interest which is usually a relatively small amount.
However the current situation is that this premium is huge. If we look at the July contract the premium over spot is $0.34 that's 10% for less than 2 month! The reason is that people expect future price of Natgas to be higher than the current price and are actually storing it up instead of selling it in spot market.
If you buy a July future at $3.9 that means you will only make money when spot Natgas is above $3.9 by end of July.
Of course you can still make money but it's going to cost you 10% no matter what. This is the same case if you want to hold for 6 months. NatGas price (spot) has to go to $5.95 for you to breakeven. To give you an idea, the Jan 2011 contract is trading at $7.3 - More than double the current price. So even if NatGas doubles in 18 months you're still only breakeven holding futures.
Buying UNG is just the same as holding futures and rolling over each month. There is no difference except you have to pay an extra 0.5% management fee.
A great example is crude oil. If you look at crude oil the futures hit bottom on Feb 12, 2009. The future price at that time was $33.5. Today it's trading at ~$65 almost double the low. The case is similar for spot crude it almost doubled since Feb. However if you look at USO the crude oil ETF it's Feb low (on 19th) was $22.74 and right now it's around $36 - just 58% increase. So in short Crude oil had doubled since Feb but if you invest in USO all you get is a 58% return. The difference is due to the roll over cost.
I'm also bullish in NatGas as well and what I did was to buy natural gas producer stocks. I am not sure if it's the smartest way but it's the smartest way I could think of so that's what I did.
I hope this would help.